Jim McNerney

Chairman, President and Chief Executive Officer

The Boeing Company

"2009 Address to Shareholders"

Annual Meeting

Chicago

April 27, 2009

From the end of World War Two through last year, there was not a single year without some growth in global GDP. Recessions in one or two parts of world were always counter-balanced -- and out-weighed -- by continuing growth in other parts of the world.

So, in a metaphorical sense, global businesses have been flying with a favorable tail wind for a long time. We have had the benefit of 60-plus years of continuing growth in the world economy.

But now -- almost overnight, it seems -- we have gone from flying with the wind at our backs to flying into the teeth of a fierce headwind. This long-running global success story, which has brought growing prosperity to billions of people around the world, has come to a painful, if temporary, halt.

Today we face a full-fledged global downturn -- the first in more than half a century -- with rising unemployment, reduced trade, exceptionally tight credit conditions, and synchronous declines in economic activity in all parts of the world. On an annualized basis, world GDP fell an unprecedented 5 percent in the fourth quarter. It continues to slide this year, with sharp declines in advanced economies and much slower growth rates in countries like India and China.

Due to reduced demand for air travel caused by this global downturn, the world's airlines are expected to suffer a 12 percent decline in revenues this year. That's big. By comparison, the events of September 11, 2001, traumatic as they were, had about half that impact on air travel.

At the same time, defense budgets are coming under increasing pressure. A leveling off of defense spending is something we have long anticipated. But today's circumstances present uniquely urgent and conflicting demands: On one hand, the U.S. defense budget must help pay the bill for huge increases in other parts of the federal budget aimed at re-stimulating the economy and addressing various social needs. On the other hand, threats to the United States and commitments to global security remain high.

In short, these are unprecedented times for everyone in most places -- certainly for Boeing, and for our commercial and defense customers.

Having said that, I believe that the current downturn is an aberration--a once-in a-lifetime storm, if you will, and not a permanent condition. More than that, I believe that Boeing is well equipped to weather this storm -- and to deliver long-term growth and relatively strong financial results both during and after it.

A dozen years ago, the leaders of this company set out to create a highly capable, broadly diversified aerospace company -- one with a healthy balance between the economically sensitive commercial airplane business and the more stable, long-cycle defense-and-government business. This has proven to be a wise strategy, notwithstanding the significant pressures on both businesses today. With the extraordinary array of capabilities and talents that we have inside our company, we are able to respond quickly and decisively to opportunities, whenever and wherever they may exist -- across the entire spectrum of aerospace. This has been, and continues to be, a great strength.

Even in this severe economic downturn, the Boeing order book is the fullest it has ever been, thanks to several exceptional years of commercial airplane orders and steady growth in defense contracts. At the end of 2008, our total backlog stood at $352 billion. For a little perspective, that is more than five times our annual revenues in 2008, and it is more than twice the size of the backlog that we had just four years earlier. While our backlog declined somewhat in the first quarter of this year, due mainly to deliveries of products to customers, it remains at near-record levels for Boeing Commercial Airplanes and among the industry's best at Integrated Defense Systems.

There are two ways of looking at our backlog. The first is as a rich storehouse of future revenues and earnings. The second is as strong proof of the soundness and competitiveness of our business base. What drove the huge increase in our backlog over the past few years has been a compelling mix of products and services ... and an intense focus on finding innovative, environmentally progressive, and cost-effective ways of satisfying our customers.

Given the extraordinary size and breadth of our backlog -- and the people and technologies that fuel our innovation -- we are in a better position than most companies to manage through these difficult times ... and, importantly, to help our customers to do the same.

In this business environment, we recognize that our near-term future depends on nothing more (and nothing less) than disciplined financial management and solid execution. We have to run the place tight from a cash viewpoint and efficiently from an operational one. Because we know that growth, especially in tough times, is even more dependent on accelerating efforts to improve productivity and maintain our competitiveness in support of our customers.

Boeing has hundreds of programs, nearly all of which are performing well. Ongoing and recent successes include proven production programs such as the 737 and 777 on the commercial side, and the C-17 and the F/A-18 programs on the military side. They include a long list of development programs, such as a new freighter version of the 777, which we are now delivering, and the U.S. Navy's P-8A maritime patrol aircraft that is a derivative of our 737 airplane. They also include Future Combat Systems for the U.S. Army and the Ground-based Midcourse Defense Program for the Missile Defense Agency -- two programs through which we are successfully demonstrating our large-scale systems-integration expertise.

But -- frankly -- we have to do a better of job of delivering on all of our promises. The reality is that problems in a very few programs can impact the company's financial performance significantly.

During 2008, we experienced cost growth and schedule delays in three key development programs: a new 747 derivative, an early warning and electronic-warfare aircraft for allied defense forces, and the 787 Dreamliner. These pressures -- on top of the impact of a two-month strike -- outweighed otherwise strong performance across the company, including double-digit margins in our defense business ... and solid results in production programs and services in our Commercial Airplanes business.

By far the biggest of our challenging programs -- and the most critical to our future growth and success -- is the 787. This is the first large airplane made mostly with composites rather than metal. It's also the fastest-selling new airplane in aviation history, now with 886 orders from 57 customers. The growing pains that we have experienced with this airplane are not uncommon with game-changing innovation.

During the later stages of development of programs that push the envelope like this one, the leading edge sometimes turns into the bleeding edge of innovation. Now, this is not to say we are anything but disappointed in the struggles we have had in getting the 787 to market. Clearly, we are. But as we go forward, the lessons we have learned from the 787 will help us encourage the right amount of "stretch" innovation in future programs -- with a greater balance to protect against the cumulative risk that can develop into major setbacks.

Notwithstanding the difficulties we have faced, there is no doubt in our minds -- and, to judge by the continuing strength of the order book, no doubt in the minds of our customers -- that the 787 is the real deal: the biggest advance in commercial aviation since the 707 at the start of the jet age. And we are on track to fly this quarter.

The Dreamliner is the perfect complement to three of the most successful airplanes in history -- the 737, 747 and 777 -- which comprise the heart of our commercial offering. These airplanes are all performing well for our customers, and their long-term sales outlook remains strong.

We do believe that the current recession will ultimately give way to a new era of global growth and prosperity -- and a corresponding recovery in commercial air transport.

With its history of strong growth, commercial aviation remains one of the most attractive markets in aerospace -- and in the entire economy, for that matter. On the defense and government side of our business, our company -- along with the entire industry -- faces a mix of both challenges and opportunities.

Earlier this month, the U.S. Defense Department outlined its 2010 budget priorities. In doing so, it highlighted potential cuts to a number of defense programs, including some of ours. It is important to keep in mind that the outlining of these priorities and the submission of the President's detailed budget to Congress next month only begins the lengthy, annual authorization and appropriations process. Over the course of the next few months, we expect a healthy and rigorous discussion as Congress evaluates DoD's proposals and determines funding for each program. While we cannot predict specific outcomes at this point, we will work very closely with our customers and congressional decision makers to ensure they have the information they need to make decisions in the long-term best interest of the United States and our industry.

Notwithstanding the current budget environment, we continue to believe that our defense business is well positioned ... with a diverse portfolio in a large, addressable market. IDS covers the defense-and-space spectrum ... from traditional programs (such as military aircraft, weapons and satellites) to newer, high-growth areas, including networked systems; command-and-control; intelligence, surveillance and reconnaissance; and unmanned platforms.

In addition to being one of the largest U.S. defense contractors, Boeing has been achieving -- and continues to pursue -- strong growth and increasing success in international defense markets. We are building Super Hornets for Australia, C-17s for Qatar and a consortium that includes NATO countries, F-15s for Singapore and the Republic of Korea, rotorcraft for a variety of international customers, and the P-8I for India.

Also, through a series of recent strategic acquisitions, we have strengthened our ability to pursue a variety of adjacent markets -- such as homeland and cyber security. There remains no doubt in my mind that the defense and security marketplace will continue to provide a wide array of opportunities to our company for many years to come.

Beyond our commercial and military products, we also see further substantial room for growth on both sides of our business in the area of services. Though highly fragmented, the secondary markets in maintenance, repair and overhaul; conversions, modifications and upgrades; spares and logistical support; and supply chain management are at least as big as the primary markets of building and selling commercial and military products. We have been expanding our share of these markets at a healthy pace over the past several years, and we see that trend continuing.

Fundamentally, this is a solid company with strong core businesses in markets that will continue to expand. While we are challenged (like all companies today) by the current global economic situation, we are doing the right things -- and have the right focus -- to succeed and grow in the years to come.

Before concluding, let me offer a perspective on two critical issues for our company -- energy and the environment. These continue to be huge factors in our business -- and that of our customers, as well.

Despite the recent fall in oil prices, there is broad agreement: The long-term trend in fossil-fuel prices is upward. At the same time, governments are using tax policies and regulation to reduce emissions of greenhouse gases, including carbon dioxide. Roughly 2 percent of the world's CO2 emissions are attributable to commercial aviation.

The most obvious way to limit these emissions -- and to contain high and volatile fuel prices -- is to burn less fuel. The search for more fuel-efficient airplanes is a never-ending quest for Boeing. Over the past 50 years, the fuel efficiency of our airplanes has reduced their carbon emissions by about 70 percent per passenger.

Sustainable biofuels is another initiative we are pursuing that addresses our environmental footprint and the availability and diversity of our energy supply. By 'sustainable,' we mean new fuels that don't adversely impact world food or water supplies or impede valuable land use. Over the past year, Boeing and other industry partners have done extensive research and in-flight testing of advanced-generation biofuels.

We have also been working with airlines and airports in developing new procedures that significantly reduce the amount of fuel that planes use in the air and on the ground. Accordingly, we are strong supporters of the FAA-proposed Next Generation air traffic management system, which would reduce fuel use substantially by allowing planes to fly more direct routes to their destinations.

While Boeing can make a big difference by reducing the environmental impact of our products and services in use, we are equally committed to act as a good steward for the environment in our own factories and offices. During 2008 we met our goal of achieving the ISO 14001 environmental management standard at all of our major manufacturing sites. We also continued to make good progress in meeting other long-term environmental performance targets for reducing energy consumption, emissions and hazardous waste, and increasing our recycling rates.

Let me close with a word of praise for the incredible people who work for Boeing.

Difficult times accentuate the need for responsible community engagement -- for generosity of spirit and concern for others.

Within Boeing, we are very fortunate to have people who exhibit that kind of caring and willingness to give their time and money to helping others in need. Despite the financial uncertainty that started touching everyone in 2008, our employee charitable giving increased 17 percent. Our people also volunteered more of their time and expertise to strengthen communities around the world.

I am incredibly proud to lead this diverse team of people who continue parallel traditions of personal service and professional accomplishment.

Indeed, for nearly a century, the men and women of Boeing have consistently overcome the toughest challenges through innovation, determination and a relentless focus on execution.

With that as our bedrock, we know what we have to do to succeed in the face of today's tough business challenges and market uncertainties. Underpinned by our unrelenting commitment to integrity in everything that we do, we will propel this company forward to the brighter days ahead.

Now, I would like you to hear directly from some of our leaders about the work their teams are doing to drive our company's success.

[Video plays]

Thank you very much. And, I might note, the P-8A maritime-patrol airplane did fly for the first time on Saturday!